Cash Flow – The Key to Make A Business Successful!!

17 Jul

A young business is characterized as being a “venture” and entrepreneurial” in nature. To take a viable venture and make it a growing concern, the entrepreneur must employ effective management strategies. If you run out of cash, you basically are out of business. Therefore it’s a smart idea to pay attention to it. In financial accounting, there is a concept called cash flow statement or statement of cash flows. It means a financial statement that shows a company’s incoming and outgoing cash during a time period.

For decade, both investors and lenders have used a company’s cash flow statement as a determinant of it’s financial health. This is part of Generally Accepted Accounting Practices. A cash flow plan consists of three parts. The first two parts everyone knows: income and expenses. It is the third part which holds out hope of improvement. The third part is the difference between income and expenses. It goes under several names, from discretionary funds to savings to free money. Cash flow statements format planning involves forecasting and tabulating all significant cash inflows and analyzing the timing of expected payments in detail.

Some advantages of the cash flow statement:

  • Helps the startups to know their inflow and outflow of cash and helps to prevent cash shortage
  • Helps the investors to judge whether any company is financially sound or not.
  • Helps the company to know whether it will be able to cover payroll and other expenses
  • Highly helpful for planning and management of future financial commitments
  • Sustainable profits come from good Cash Flow Analysis and Cash Flow Management.

Using financial or accounting tools such as software can help to manage Cash Flow well. Good accounting software will also let you budget income & expenses and will in exchange budget your cash flow. This makes it easier to make wise spending decisions, and not to overspend. Using your financial and budgeting software to help you run ‘what-if’ scenarios can be helpful for your bottom line, and can therefore help improve your cash.

 

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